Export Subsidies Aren't Really Prohibited

As we all know, SCM Agreement Article 3 says that "subsidies contingent, in law or in fact, whether solely or as one of several other conditions, upon export performance" -- in other words, export subsidies -- "shall be prohibited." So, no export subsidies at all right? For the most part, yes, but not entirely. Item (k) of the SCM Agreement's Illustrative List of Export Subsidies says that the following are export subsidies:

The grant by governments (or special institutions controlled by and/or acting under the authority of governments) of export credits at rates below those which they actually have to pay for the funds so employed (or would have to pay if they borrowed on international capital markets in order to obtain funds of the same maturity and other credit terms and denominated in the same currency as the export credit), or the payment by them of all or part of the costs incurred by exporters or financial institutions in obtaining credits, in so far as they are used to secure a material advantage in the field of export credit terms.

However, these are not export subsidies:

Provided, however, that if a Member is a party to an international undertaking on official export credits to which at least twelve original Members to this Agreement are parties as of 1 January 1979 (or a successor undertaking which has been adopted by those original Members), or if in practice a Member applies the interest rates provisions of the relevant undertaking, an export credit practice which is in conformity with those provisions shall not be considered an export subsidy prohibited by this Agreement.

In essence, this provision means that governmnent export credit agencies can provide export subsidies as long as they comply with certain international agreements (in practice, the OECD Arrangement on Export Credits). If they comply with the terms set out there, then the practice "shall not be considered an export subsidy prohibited by this Agreement." Of course, that doesn't change the fact that it's still probably an export subsidy. It's just not prohibited.

I raise all this after having seen a quote from Bill Clinton's speech in support of reauthorizing the U.S. Ex-Im bank, where he said:

“While you can say all you want about, in theory, subsidizing the financing of exports distorts the free market, as a practical matter when you get on a field in a competition, you either meet the competition or you get beat,” Clinton said. “I have never been big on unilateral disarmament.”

There's no doubt that unilateral disarmament in trade matters is difficult. I generally support it, but I understand why it doesn't happy very often. To paraphrase the Appellate Body in Hormones, in the real world where people make laws, policies and regulations, unilateral free trade is hard to achieve. But, there is the possibility of multilateral disarmament. If we agree that export subsidies are bad (and existing WTO rules suggest that many people think they are), why not remove this exception for certain export credits? (An exception which, by the way, is utilized mostly by big or rich countries, and can't be used very effectively by poor countries.)

Comments

Export Subsidies Aren't Really Prohibited

As we all know, SCM Agreement Article 3 says that "subsidies contingent, in law or in fact, whether solely or as one of several other conditions, upon export performance" -- in other words, export subsidies -- "shall be prohibited." So, no export subsidies at all right? For the most part, yes, but not entirely. Item (k) of the SCM Agreement's Illustrative List of Export Subsidies says that the following are export subsidies:

The grant by governments (or special institutions controlled by and/or acting under the authority of governments) of export credits at rates below those which they actually have to pay for the funds so employed (or would have to pay if they borrowed on international capital markets in order to obtain funds of the same maturity and other credit terms and denominated in the same currency as the export credit), or the payment by them of all or part of the costs incurred by exporters or financial institutions in obtaining credits, in so far as they are used to secure a material advantage in the field of export credit terms.

However, these are not export subsidies:

Provided, however, that if a Member is a party to an international undertaking on official export credits to which at least twelve original Members to this Agreement are parties as of 1 January 1979 (or a successor undertaking which has been adopted by those original Members), or if in practice a Member applies the interest rates provisions of the relevant undertaking, an export credit practice which is in conformity with those provisions shall not be considered an export subsidy prohibited by this Agreement.

In essence, this provision means that governmnent export credit agencies can provide export subsidies as long as they comply with certain international agreements (in practice, the OECD Arrangement on Export Credits). If they comply with the terms set out there, then the practice "shall not be considered an export subsidy prohibited by this Agreement." Of course, that doesn't change the fact that it's still probably an export subsidy. It's just not prohibited.

I raise all this after having seen a quote from Bill Clinton's speech in support of reauthorizing the U.S. Ex-Im bank, where he said:

“While you can say all you want about, in theory, subsidizing the financing of exports distorts the free market, as a practical matter when you get on a field in a competition, you either meet the competition or you get beat,” Clinton said. “I have never been big on unilateral disarmament.”

There's no doubt that unilateral disarmament in trade matters is difficult. I generally support it, but I understand why it doesn't happy very often. To paraphrase the Appellate Body in Hormones, in the real world where people make laws, policies and regulations, unilateral free trade is hard to achieve. But, there is the possibility of multilateral disarmament. If we agree that export subsidies are bad (and existing WTO rules suggest that many people think they are), why not remove this exception for certain export credits? (An exception which, by the way, is utilized mostly by big or rich countries, and can't be used very effectively by poor countries.)